Non-U.S. developed market stocks endured a tumultuous first quarter, generating mixed results in March after falling in January and rising in February. Within the broad MSCI Europe, Australasia, and Far East Index, small-cap stocks outperformed large-caps and value stocks slightly outperformed growth shares. The utilities sector (+7%) was far and away the strongest performer, followed by health care. Emerging markets equities began the year with losses in January and February and then posted solid gains in March, but ended the quarter modestly lower. Market sentiment on emerging economies brightened significantly as the period came to a close, with stocks in Latin America and Asia posting strong advances.
The International Discovery Fund returned 2.57% in the quarter compared with 3.25% for the S&P Global ex-U.S. Small Cap Index and 2.53% for the Lipper International Small/Mid-Cap Growth Funds Average. For the 12 months ended March 31, 2014, the fund returned 20.31% versus 17.49% for the S&P Global ex-U.S. Small Cap Index and 20.32% for the Lipper International Small/Mid-Cap Growth Funds Average. The fund's average annual total returns were 20.31%, 22.97%, and 10.89% for the 1-, 5-, and 10-year periods, respectively, as of March 31, 2014. The fund's expense ratio was 1.23% as of its fiscal year ended October 31, 2013.
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Current performance may be lower or higher than the quoted past performance, which cannot guarantee future results.
Share price, principal value, and return will vary and you may have a gain or loss when you sell your shares.
The International Discovery Fund charges a 2%
redemption fee on shares held 90 days or less.
The performance information shown does not reflect the deduction of the redemption fee;
if it did, the performance would be lower.
The fund's largest sector overweights were to information technology and consumer discretionary. Within information technology, we continue to favor software, Internet, and IT services companies with innovative and resilient business models supported by solid bases of recurring revenues or driven by structural trends. In consumer discretionary, we favor media stocks amid further signs of economic improvement in Europe in particular. In terms of regional allocations, our holdings in Europe excluding the UK accounted for the largest percentage of the fund at the end of the quarter, followed by the Pacific excluding Japan region.
In Europe, better economic data suggest that the modest recovery will continue, helped by the gradual easing of austerity measures and stronger U.S. growth. Additionally, European valuations remain reasonable by several key measures. While we remain optimistic about the longer-term prospects for Japan's market, we are looking for signs that its policymakers are politically willing and able to address important structural reforms. We believe emerging markets offer compelling valuation opportunities given their strong long-term growth prospects. While emerging markets are now facing a period of slower growth coupled with tighter global liquidity, we believe that the secular growth drivers for emerging markets remain in place.